Bank of America 2008 Annual Report Download - page 175

Note 18 – Income Taxes
The components of income tax expense for 2008, 2007 and 2006 were as follows:
(Dollars in millions) 2008 2007 2006
Current income tax expense
Federal $ 5,075 $5,210 $ 7,398
State 561 681 796
Foreign 585 804 796
Total current expense 6,221 6,695 8,990
Deferred income tax expense (benefit)
Federal (5,269) (710) 1,807
State (520) (18) 45
Foreign (12) (25) (2)
Total deferred expense (benefit) (5,801) (753) 1,850
Total income tax expense (1) $ 420 $5,942 $10,840
(1) Does not reflect the deferred tax effects of unrealized gains and losses on AFS debt and marketable equity securities, foreign currency translation adjustments, derivatives, and employee benefit plan adjustments that
are included in accumulated OCI. As a result of these tax effects, accumulated OCI increased $5.9 billion in 2008, decreased $5.0 billion in 2007 and increased $378 million in 2006. Also, does not reflect tax effects
associated with the Corporation’s employee stock plans which decreased common stock and additional paid-in capital $9 million in 2008 and increased common stock and additional paid-in capital $251 million and
$674 million in 2007 and 2006. Goodwill was reduced $9 million, $47 million and $195 million in 2008, 2007 and 2006, respectively, reflecting certain tax benefits attributable to exercises of employee stock options
issued by MBNA and FleetBoston which had vested prior to the merger dates.
Income tax expense for 2008, 2007 and 2006 varied from the
amount computed by applying the statutory income tax rate to income
before income taxes. A reconciliation between the expected federal
income tax expense using the federal statutory tax rate of 35 percent to
the Corporation’s actual income tax expense and resulting effective tax
rate for 2008, 2007 and 2006 are presented in the following table.
2008 2007 2006
(Dollars in millions) Amount Percent Amount Percent Amount Percent
Expected federal income tax expense $1,550 35.0% $7,323 35.0% $11,191 35.0%
Increase (decrease) in taxes resulting from:
State tax expense, net of federal benefit 27 0.6 431 2.1 547 1.7
Low income housing credits/other credits (722) (16.3) (590) (2.8) (537) (1.7)
Tax-exempt income, including dividends (631) (14.3) (683) (3.3) (630) (2.0)
Leveraged lease tax differential 216 4.9 148 0.7 249 0.8
Foreign tax differential (192) (4.3) (485) (2.3) (291) (0.9)
Changes in prior period UTBs (including interest) 169 3.8 143 0.7 126 0.4
Non-U.S. leasing – TIPRA/AJCA – –(221) (1.1) 175 0.5
Other 3 0.1 (124) (0.6) 10 0.1
Total income tax expense $ 420 9.5% $5,942 28.4% $10,840 33.9%
As a result of the Tax Increase Prevention and Reconciliation Act of
2005 (TIPRA) and the American Jobs Creation Act of 2004 (the AJCA), the
Corporation’s non-U.S. based commercial aircraft leasing business no
longer qualified for a reduced U.S. tax rate. Accounting for the change in
law resulted in the discrete recognition of a $175 million charge to
income tax expense during 2006. However, the AJCA modified the anti-
deferral provisions associated with the active leasing of aircraft operated
predominantly outside the U.S. The restructuring of the Corporation’s
non-U.S. based commercial aircraft leasing business in compliance with
the provisions of the AJCA resulted in a one-time income tax benefit of
$221 million in 2007.
The Corporation adopted the provisions of FIN 48 on January 1, 2007.
FIN 48 clarifies the accounting and reporting for income taxes where
interpretation of the tax law may be uncertain. As a result of the adoption
of FIN 48, the Corporation recognized a $198 million increase in UTB
balance, reducing retained earnings by $146 million and increasing
goodwill by $52 million. The reconciliation of the beginning UTB balance
to the ending balance is presented in the following table.
Reconciliation of the Change in Unrecognized Tax Benefits
(Dollars in millions) 2008 2007
Beginning balance $3,095 $2,667
Increases related to positions taken during prior years 688 67
Increases related to positions taken during the current year 241 456
Positions acquired or assumed in business combinations 169 328
Decreases related to positions taken during prior years (371) (227)
Settlements (209) (108)
Expiration of statute of limitations (72) (88)
Ending balance $3,541 $3,095
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